BUSINESSWEEK ONLINE : OCTOBER 23, 2000 ISSUE
THE CORPORATION Commentary: Many New Airlines Will Never Grow Old These should be the best of times for young airlines. A robust economy is packing planes and allowing big carriers to jack up airfares. At the same time, poor service and sky-high business fares are sending many travelers in search of alternatives to the major airlines. But against this rosy backdrop, many new entrants are struggling or going out of business. Pro Air Inc., recently grounded by federal regulators over safety concerns, and tiny AccessAir in Iowa have both filed for bankruptcy protection. Vanguard Airlines Inc., hurt by high fuel prices, operational problems, and too-rapid growth, is losing millions of dollars from its Kansas City (Mo.) base. SLOPPY JOB. As startups have discovered so often in the cutthroat airline business, it's easy to enter the fray but hard to succeed. Yes, the giants have been accused of crushing small fry with predatory tactics, fortress hubs, and big frequent-flier programs. But startups often make their own mistakes--from choosing the wrong routes to running sloppy operations. That worries consumer advocates, who want more competition to keep the majors in check. And if consolidation follows on the heels of UAL Corp.'s (UAL) deal to buy US Airways Group Inc., ''you're going to need new entry more than ever,'' says Kevin P. Mitchell, chairman of the Business Travel Coalition, which represents big corporations. Certainly, there are success stories. JetBlue Airways, the best-financed startup in airline history, appears to be off to a phenomenal start since February. The low-fare airline that offers live TV and leather upholstery is filling 72% of the seats on its eight new Airbus A320s. It flies to nine cities, going up to 12 in November. CEO David Neeleman says the airline, based at New York's John F. Kennedy International Airport, posted a ''double-digit'' profit margin in August and should be profitable this year. It just raised another $30 million from its investors on top of the $130 million it started with. Neeleman ''is the most successful airline entrepreneur of the last 10 years,'' says Darryl Jenkins, director of the Aviation Institute at George Washington University. And after a rocky start, six-year-old Frontier Airlines Inc. in Denver seems to be on course. It's benefiting in part from operational and labor woes at UAL's United Airlines . Second-quarter net income doubled, to more than $16 million, as the airline attracted more business passengers and raised fares. Likewise, 10-year-old Spirit Airlines has proven to be a survivor, after shifting its strategy to avoid markets dominated by one major carrier. It even moved its home base last year from Northwest Airline Corp.'s (NWAC) hub in Detroit to Fort Lauderdale. But for every JetBlue and Frontier, there seems to be a Pro Air. Even before the Federal Aviation Administration revoked Pro Air's operating certificate in September--a move Pro Air is contesting--the airline was ailing. Despite winning contracts from major companies such as General Motors Corp. (GM), it failed to offer the frequent flights business passengers demanded and spread itself too thin, with only three aircraft. What's more, it chose to compete head-on in Detroit with Northwest. ''They were lucky to fly as long as they did,'' says Cameron R. Burr, a partner at the Burr Group, an investment firm. Pro Air insists it was about to raise $70 million right before the FAA shut it down. Some experts see a smoother ride ahead. Led by United and its recent pilot contract, major carriers are expected to see big increases in labor costs. That probably means higher fares for passengers--and a bigger pricing umbrella for the little guys to work under. And even if the economy softens, ''that will refocus [customers] on economic value'' instead of frequent-flier benefits, says Stanley L. Pace, head of Bain & Co.'s airline practice. But until then, the new guys in the skies have little room for error. By Wendy Zellner & Michael Arndt Zellner and Arndt follow airlines from Dallas and Chicago. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Can AirTran Keep Climbing? CHART: A Tale of Two AirTrans RESUME: Joseph B. Leonard Commentary: Many New Airlines Will Never Grow Old INTERACT E-Mail to Business Week Online

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